Scottish manufacturing firms reported that the pace of output growth picked up in the three months to January, while growth in export orders and deliveries were the strongest since April 2015, according to the CBI’s latest Industrial Trends Survey for Scotland.

The survey of Scottish manufacturers found that growth in domestic orders also accelerated over the same period. Meanwhile, numbers employed recovered after deteriorating in the previous quarter.

However, average unit costs growth rose to the strongest in a year, driving a pick-up in both domestic and export price growth.

Looking ahead, expectations were more pessimistic across the board. Scottish firms anticipate that new orders growth will ease over the next three months, with only a slight rise in export orders expected, and domestic orders set to stay broadly unchanged. Additionally, numbers employed are also expected to be flat next quarter.

Business optimism about export prospects for the coming twelve months continued to improve but at a slower pace than the preceding quarter, despite the strong exporting performance in the three months to January. However, optimism about the business situation more broadly improved at a quicker pace.

Average unit cost growth is expected to remain elevated, with expectations the strongest since April 2013. Export prices are set to grow at a similar pace while domestic prices are set to rise at a faster rate, with expectations also the strongest since 2013.

Investment plans for the following twelve months deteriorated further for plant and machinery and innovation, where manufacturers expect to cut back on investment to the greatest extent since April 2012.

Tracy Black, CBI Scotland Director, said:

“Manufacturing remains a key sector for the Scottish economy and solid growth will be warmly welcomed. But expectations for orders growth are softer and some investment plans are looking weak.

“Furthermore, these results come against the background of some concerning GDP figures for the Scottish economy. Growth is still worryingly low and not only do we continue to run behind the UK as a whole, there is little sign of breaking free from a persistent cycle of fragile growth.

“Internationalisation is a vital driver of both economic and productivity growth and is one of four areas we’ll be looking to address in the coming year. Scotland has lots of companies with huge exporting potential that aren’t currently taking advantage of overseas markets – we need a better understanding of what’s holding them back and what we can do to help overcome any barriers.”

Key findings:

Business sentiment

Business optimism (+19%) improved on the previous quarter (+7%). Export optimism also continued to improve in the three months to January 2018 (+10%), but to a lesser extent than in the previous quarter (+36%)

Growth in the volume of export deliveries picked up at the fastest pace since April 2015, while domestic deliveries recovered from a decline in the previous quarter (+21% from -6%)

Firms expect new orders growth to slow (+4%): domestic orders are expected to be flat (-2%) and export orders are set to ease (+4%)

Employment grew at a robust pace (+25%) over the quarter after having fallen in the three months to October (-6%). Looking ahead, manufacturers anticipate that staffing numbers will be broadly unchanged (-1%)

Prices and costs

Average domestic (+13%) and export price (+15%) growth picked up over the three months to January. Export prices are set to grow at a similar pace (+14%) while domestic price inflation is expected to accelerate (+31%), with expectations the strongest since 2013

Average unit cost growth also strengthened (+35%) and is set to continue at a similar pace (+36), the strongest expectations since April 2013

Investment

Investment intentions for plant and machinery (-45%) and innovation (-29%) were the lowest since April 2012. Firms also expect to spend less on buildings investment (-34%) and training (-13%), but investment plans have improved on October (-44% and -21% respectively)